COMMENT: Greene King - a purchase full of potential
Although Greene King's purchase of Ridley's strengthens its position as both a UK brewer and pub owner, the two activities may not prove complementary in the longer term. Indeed, achieving the brewing units' full growth potential will require investments that a company the size of Greene King can scarcely afford.
Greene King has agreed to acquire 73 Ridley's pubs and the Tolly Cobbold, Old Bob and Prospect brands, adding them to its existing 2,000 pubs and brands such as IPA, Old Speckled Hen and Abbot Ale.
For the moment, the acquisition strengthens Greene King's position as an independent brewer in the traditional British mold - one which owns a tied estate of pubs as well as producing beers. Greene King and Wolverhampton & Dudley are now the only sizeable companies following this model: market leaders Scottish & Newcastle, Carlsberg and InBev have all sold their estates to dedicated pub companies over the last 10 years.
Greene King may also eventually need to change its structure. To maximise returns from the pub business, it needs to ensure that costs are kept under control, to make minor bolt-on acquisitions like this one, and to determine the most appropriate management structure (in-house or tenanted) for each of its individual pubs.
However, to grow sales of flagship beer brands like IPA and Old Speckled Hen, the brewer must come up with compelling and exciting marketing and new product development efforts to attract new customers to real ale. In order to sell these products outside its own pub network, it needs to work closely with the larger pub companies (as it has recently been doing with Mitchells & Butler), as well as with supermarkets in the off-trade.
There is little synergy between the two activities - and while the pub business is large enough to stand alone, the beer business would benefit substantially from increased spending power to back its distribution and marketing efforts. The purchase of Greene King's brands would represent a strong opportunity for a major brewer looking to acquire a set of fast-growing, well-marketed premium niche beers.
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